Oracle Misses Big In Q3 As Software, Hardware Revenue Drops

Oracle says its software, cloud computing and hardware businesses are all primed for growth, despite fiscal third quarter results in which all three segments missed internal forecasts, and an outlook for the current quarter that disappointed Wall Street.

Oracle's revenue for the third quarter ended Feb. 28 dipped one percent year over year, including a 2 percent drop in software license and cloud subscription revenue and a 23 percent drop in hardware revenue.

According to Marketwatch, Oracle was expecting software license and cloud subscription revenue to grow between 3 and 13 percent during the quarter, and hardware sales to be flat to down 10 percent.

Oracle has added headcount and made changes in the field focused on increasing its win rate in the cloud space, CEO Larry Ellison told analysts in a Q&A during the earnings call.

"I think in the third quarter we saw very good growth in the cloud," said Ellison, referring to the SaaS component of cloud. "That's growing very nicely. But, it's still a small business with a high growth rate."

Oracle later this month will start shipping servers based on its new SPARC T5 microprocessor. Ellison suggested that Oracle's introduction during the quarter of a lower end Exadata Database Machine impacted the average selling price of the vendor's hardware line.

"In Q1 [2014) we will see a turnaround. Next year will be a big growth year for our hardware business," Ellison said on the earnings call.

Oracle President Mark Hurd deflected one analyst's question about whether the weak results are symptomatic of macroeconomic forces or problems with the vendor's sales strategy.

"I think we feel great about both our strategy and our product line," Hurd responded. "We have increased our sales force dramatically and feel great about our coverage. The pipeline is up significantly -- I'm not going to give you a number, but it is up materially," Hurd said.

The problem, Hurd suggested, is that the new salespeople are not yet hitting on all cylinders. "The issue for us is simply conversion. We feel good about our ability to execute through it," he said.

Oracle's net income was flat at $2.5 billion, and earnings per share rose 5 percent from 49 to 52 cents per share. On a non-GAAP basis, Oracle earned 65 cents per share, compared to Wall Street analysts' expectation of 66 cents per share.

For its current quarter, Oracle is forecasting a revenue drop of between 1 and 4 percent year over year. According to Marketwatch, analysts are expecting revenue growth for the current quarter of 4.5 percent.

Oracle investors reacted to the news by sending Oracle shares down nearly 8 percent to $33.03 in Wednesday after-hours trading.